Marital Privilege Argument Premature in Insurance Broker’s Trade Secrets Case Against Former Agent – IL ND

The district court in Cornerstone Assurance Group v. Harrison discusses the Federal court plausibility standard for pleadings and considers whether Illinois’s marital privilege statute defeats an insurance broker’s trade secrets suit against a former employee.

The defendant signed an employment contract that contained a confidentiality provision covering plaintiff’s financial information, marketing plans, client leads, prospects, and lists along with fee schedules, and computer software.  Plaintiff paid defendant $1,000 not to disclose plaintiff’s confidential information.

The plaintiff alleged the defendant disclosed the information – including a protected client list and private medical data – to her husband, who worked for a competing broker.  The plaintiff alleged the competitor used that information to recruit plaintiff’s employees.  The defendant moved to dismiss the plaintiff’s claims under Rule 12(b)(6).

Trade Secrets Claim

Denying the motion, the court first looked to the pleading requirements of a claim under the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/1, et seq.To prevail on a claim for misappropriation of a trade secret under the [ITSA], the plaintiff must demonstrate (1) the information at issue was a trade secret, (2) that the information was misappropriated, and (3) that it was used in the defendant’s business.

ITSA defines a trade secret as information, data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that is (1) sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (20 is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. 765 ILCS 1065/2(d)

The law does not confer trade secret status for information “generally known or understood within an industry even if not to the public at large.”  A plaintiff also foregoes trade secret protection where it fails to take affirmative measures to keep others from using the proprietary information.  In addition to these statutory guideposts, Illinois case law considers several additional factors that inform the trade secrets analysis.  These include: (1) the extent to which the information is known outside of the plaintiff s business; (2) the extent to which the information is known by employees and others involved in the plaintiff s business; (3) the extent of measures taken by the plaintiff to guard the secrecy of the information; (4) the value of the information to the plaintiff s business and to its competitors; (5) the amount of time, effort and money expended by the plaintiff in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.  No one factor predominates but the more factors present increases plaintiff’s chances of establishing a trade secret.

The Court held the plaintiff alleged sufficient facts to show that some of the information allegedly misappropriated was a trade secret.  Under Illinois law, a list of actual or potential customers as well as insurance claims data can qualify as a trade secret under certain facts.  The plaintiff’s Complaint allegations that it spent several years developing the confidential data at issue and that it wasn’t accessible to others satisfied the pleading requirements for a valid trade secrets case.

Marital Communications Privilege

The Court held it was too soon to address Defendant’s argument that the marital privilege statute negated Plaintiff’s claims.  The marital privilege attaches to husband and wife communications.  But a spouse’s communication to a third party waives the privilege and a litigant is free to use that communication against its adversary.  The marital privilege also doesn’t extend to subsequent uses of protected communication.  See 735 ILCS 5/8-801 (husband and wife may not testify to communication or admission made by either of them to each other.)

While the court opted to table the privilege issue until after discovery, the Court noted the plaintiff alleged the defendant disclosed trade secrets not only to her husband but to a third party – the husband’s employer. Since the Complaint established it was possible the defendant shared information with someone other than her husband, the marital privilege didn’t bar plaintiff’s claims at the case’s pleading stage.

Afterwords

This case represents a court flexibly applying Rule 12’s plausibility standard in the trade secrets context.  Solidifying the proposition that a plaintiff doesn’t have to plead evidence or try its case at the pleading stage, the Court makes clear that disclosure of a trade secret to even a single competitor can satisfy the misappropriation prong of a trade secrets claim.  Harrison also shows the marital communications privilege won’t apply to information that escapes a husband-wife union.  A complaint’s plausible allegation that protected information went beyond the confines of the marital union nullifies the marital privilege.

‘Salesy’ LinkedIn Posts Can Violate Ex-Employee’s Noncompete – Minn. Federal Court

In July 2017, a Federal court in Minnesota grappled with the in-vogue issue of whether a former employee violates post-employment nonsolicitation provisions by asking her network for business on LinkedIn.

The warring factions in Mobile Mini v. Vevea, (see here) are direct competitors in the portable storage business.  Plaintiff sued when the defendant, a former sales representative for plaintiff, went to work for a competitor in violation of noncompete requirements in her employment agreement.  After the defendant posted on LinkedIn where she was working and requested viewers to call her for quote, the Plaintiff sued.

Partially granting the request for an injunction, the Court examined the pleading and proof elements for injunctive relief and whether a social media post can support a nonsolicitation violation.

Rule 65 of the Federal Rules of Civil Procedure governs preliminary injunctions.  The moving party must establish: (1) the likelihood of the moving party’s success on the merits; (2) the threat of irreparable harm to the moving party; (3) the state of balance between the alleged irreparable harm and the harm that granting the injunction would inflict on the other party; and (4) how the public interest is impacted if an injunction does/doesn’t issue.  The critical question on a request for an injunction is whether a Court should “intervene to preserve the status quo” until it determines the merits of the case.

Likelihood of Success on the Merits

The Court found plaintiff’s prospects for winning on the merits were strong.  To prevail on a non-compete claim in Delaware (Delaware law governed the parties’ agreement), a plaintiff must prove (1) the existence of a valid, enforceable contract; (2) breach of a contractual obligation by the defendant; and (3) damages.

A Delaware non-compete agreement is valid if it its duration and geographic reach are reasonably limited and the non-compete’s purpose and effect is to protect a legitimate employer interest. The Court found the subject agreement met these requirements

Next, the court turned to defendant’s LinkedIn activity and whether that amounted to a breach of the employment agreement.  The Court found the plaintiff breached the contract by making “two blatant sales pitches” for her new employer before the noncompete lapsed.

The court viewed the defendant’s solicitations as going further than simple status updates.  It held that had defendant simply posted her new position and contact information, it likely wouldn’t have run afoul of the defendant’s employment contract. For support, the Court pointed to an Ohio Federal court and a Mass. state court which held that a defendant’s social media postings did not rise to the level of an actionable noncompete claim. See Arthur J. Gallagher & Co. v. Anthony, 2016 WL 4523104, at *15 (N.D. Ohio 2016) (press release posted on LinkedIn and Twitter announcing that an employer had hired a new employee was not a solicitation); Invidia, LLC v. DiFonzo, 2012 WL 5576406, at *5 (Mass. Super. Ct. 2012) (hair stylist’s Facebook post announcing new job not a solicitation).

Since the defendant’s purpose in her LinkedIn postings was to entice business from her network and not simply announce a job change, the Court held that defendant likely violated the the employment contract.

Other Injunctive Relief Factors

The Court then found the plaintiff satisfied the irreparable harm element.  It noted defendant’s past and threatened future noncompete violations and that they could imperil plaintiff’s future customers, goodwill and reputation.

On the noncompete’s start date (the plaintiff wanted the court to reset the time to the date of the court’s order on the plaintiff’s preliminary injunction motion – several months after suit was filed), the court sided with the defendant.  The Court agreed that restarting the clock would give the plaintiff a windfall and impede defendant’s ability to earn a living.

Take-aways:

This case is instructive on how the line between digital self-promotion and blatant sales pitches can blur.  One of the case’s chief lessons is that while noncompetes are not favored,  social media posts can still violate post-employment restrictions.  Those who sign noncompetes should be careful whether their post-employment LinkedIn posts can objectively be viewed as a sales pitch.

 

 

Random Florida-to-Illinois Texts, Emails and Phone Calls Not Enough to Subject Fla. LLC to IL Jurisdiction

In McGlasson v. BYB Extreme Fighting Series, LLC, 2017 WL 2193235 (C.D.Ill. 2017), the plaintiff sued a Florida LLC and two Florida residents for pilfering the plaintiff’s idea to host MMA fights on cruise ships off the coast of Florida.

Plaintiff claimed that after he sent a rough video of the concept to them, the defendants hijacked the concept and then formed their own MMA-at-sea event, causing the plaintiff monetary damages.

All defendants moved to dismiss the plaintiff’s claims on the basis that they weren’t subject to Illinois jurisdiction.

The Court granted defendants’ motion to dismiss and in doing so, discussed the requisite contacts for an Illinois court to exercise jurisdiction over an out-of-state defendant who commits an intentional tort.

In breach of contract actions, personal jurisdiction turns on whether a defendant purposefully avails itself or the privilege of doing business in the forum state. With an intentional tort defendant, by contrast, the court looks at whether a defendant “purposefully directed” his conduct at the forum state.

Purposely directing activity at a state requires a finding of (1) intentional conduct, (2) expressly aimed at the forum state, with (3) defendant’s knowledge the effects would be felt in the forum state.  If plaintiff makes all three showings, he establishes that a defendant purposefully directed its activity at the forum state.

A plaintiff in an intentional tort case cannot, however, rely on his own unilateral activity to support jurisdiction over a defendant.  Similarly, a defendant’s contact with a third party with no connection to a forum state isn’t relevant to the jurisdictional analysis.

Here, the lone Illinois contacts alleged of defendants were a handful of emails, phone calls and text messages sent to the Illinois resident plaintiff.  To strengthen his case for jurisdiction over the Florida defendants, plaintiff alleged he suffered an economic injury in Illinois.

Rejecting plaintiff’s argument, the court viewed e-mail as not existing “in any location at all:”  instead, it bounces from server to server and the connection between where an e-mail is opened and where a lawsuit is filed is too weak a link to subject an out-of-state sender to jurisdiction in a foreign state.

The Court also noted that (a plaintiff’s) suffering economic injury in Illinois isn’t enough, standing alone, to confer personal jurisdiction over a foreign resident.  The focus is instead whether the defendant’s conduct “connects him to [Illinois] in a meaningful way.”

Since plaintiff’s MMA-at-sea idea had no connection to Illinois and the defendant’s sporadic phone calls, emails and texts weren’t enough to tie him to Illinois, the Court lacked personal jurisdiction over the Florida defendants.

Take-aways:

1/ In intentional tort setting, a foreign defendant’s conduct must be purposefully directed at a forum state for that state to exercise personal jurisdiction over the defendant;

2/ plaintiff’s unilateral actions vis a vis an out-of-state defendant don’t factor into the jurisdictional calculus;

3/ A defendant’s episodic emails, texts and phone calls to an Illinois resident likely won’t be enough to subject the defendant to personal jurisdiction in Illinois.